Sensata IPO: Well positioned company vs. price

Sunday

Mar 7, 2010 at 12:26 AM

ANDREW VANACORE

NEW YORK -- An initial public offering by Sensata Technologies Holding will give investors a chance to bet on a rebound in the auto industry as well as consumer spending in emerging markets, but they may balk at the price.

Sensata, once a subsidiary of chip maker Texas Instruments Inc. and now backed by private equity firm Bain Capital, makes sensors that go into everything from cars to refrigerators.

The company hopes to raise as much as $632 million next week by selling about 31.6 million shares for as much as $20 each. If it's successful it will be the biggest IPO so far this year.

The auto industry fallout put a major dent in the company's revenue, more than half of which comes from the auto sector, according to Paul Bard, vice president of research at Renaissance Capital.

The auto sector stabilized during the second half of 2009 as sales picked up, but Bard said there are a couple of reasons why investors may stumble over Sensata's offering price.

For starters, the company is entering an IPO market that has looked at times more like a flea market. Almost 70 percent of year-to-date IPOs priced below the expected range, according to a report released by Renaissance Capital last month.

That compares with an average of just 28 percent from 2001 to 2009.

And like a number of other companies trying to enter the market this year, Sensata comes with a sizable amount of debt, Bard pointed out.

The company listed a total debt of more than $2.3 billion in a recent securities filing. In a filing with the U.S. Securities and Exchange Commission, Sensata said it will use about $350 million of the proceeds from its IPO to pay off debt.

Still, after a rough year, the economy has stabilized and the outlook appears to be growing brighter for Sensata. Revenue in 2009 dipped 20 percent to $1.1 billion, only to rebound by 26 percent in the final three months of the year to $338.1 million.

Sensata has a strong position in emerging markets such as China, India and Brazil, where robust consumer spending may help lead the world economy out of a rut. The company said 18 percent of its sales last year were in developing countries.

And Sensata makes products intended to make the products of other companies safer, particularly items with engines.

That is a growing priority for consumers, Bard said, particularly at a time of massive auto recalls.

Sensata Technologies Holding BV, which is based in the Netherlands, plans to trade on the New York Stock Exchange under the symbol "ST."

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